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Recession predictions

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    #842
    LuasSimon
    Closed Accounts Posts: 1,208 ✭✭✭LuasSimon


    If the Banks charged negative interest circa -1% on anyone with more than 500K or less even in deposit accounts and gave mortgages at 1-1.5% and personal loans at 4% would it not be good news for the vast majority particularly younger people and the squeezed middle ??

    Bottom line too few people have too much of the country’s wealth .


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    #843
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    LuasSimon wrote: »
    If the Banks charged negative interest circa -1% on anyone with more than 500K or less even in deposit accounts and gave mortgages at 1-1.5% and personal loans at 4% would it not be good news for the vast majority particularly younger people and the squeezed middle ??

    Bottom line too few people have too much of the country’s wealth .

    Banks are not making a profit at the moment and won't be for a long time to come due to the low interest rate environment and negative rates on gov bonds and ECB deposits. So I would not see any reduction in cost of lending coming anytime soon.

    Negative rates on deposits over 500k will only drive these deposits into already over priced asset classes like housing making it more difficult for FTB's.


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    #844
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    Private debt has been decreasing the past few years!!

    Yes, private debt in Ireland has been falling, but we don't exist in a vacuum! private debt globally has been steadily rising, for decades now, this is ultimately what caused 08, and we have not resolved these issues, basically, there's too much of it now, it may never be truly serviceable, but we haven't accepted this possibility yet. Our current private debt obligations are again potentially a danger to our economy, this story is slowly unfolding in front of us. We ve yet again, entered a period of deep economic uncertainty, and there's now a growing concern for possibility of increasing defaults and non performing loans, the stress tests are gonna be tested within an inch of their lives.


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    #845
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    Yes, private debt in Ireland has been falling, but we don't exist in a vacuum! private debt globally has been steadily rising, for decades now, this is ultimately what caused 08, and we have not resolved these issues, basically, there's too much of it now, it may never be truly serviceable, but we haven't accepted this possibility yet. Our current private debt obligations are again potentially a danger to our economy, this story is slowly unfolding in front of us. We ve yet again, entered a period of deep economic uncertainty, and there's now a growing concern for possibility of increasing defaults and non performing loans, the stress tests are gonna be tested within an inch of their lives.

    I agree that globally their is a debt issue both in the private and public sector and because of this there will be slow economic growth for a long time to come.

    The private debt in Ireland has been falling the past few years and there is no sign of Irish banks having there capital reserves tested by NPL's. In fact it is the opposite whereby the Irish banks have overprovided for arrears in their half yearly results. And this is even called out in the rating agency reports on European banks.


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    #846
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    The private debt in Ireland has been falling the past few years and there is no sign of Irish banks having there capital reserves tested by NPL's. In fact it is the opposite whereby the Irish banks have overprovided for arrears in their half yearly results. And this is even called out in the rating agency reports on European banks.

    I understand all of that, but you can be damn sure, those tests are gonna be significantly tested now, with this growing uncertainty, this has the potential to go badly wrong very quickly, particularly globally, we simply don't have a clue, I truly believe we need to stop with all this deficit nonsense, growing public debt has proved itself to be far more stable than growing private debt, although, not problem free. We need to protect jobs, particularly in the private sector, and particularly in sme's, so hopefully budget measures will do so.


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    #847
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    I understand all of that, but you can be damn sure, those tests are gonna be significantly tested now, with this growing uncertainty, this has the potential to go badly wrong very quickly, particularly globally, we simply don't have a clue,

    At the moment there is no sign of the stress tests being tested. This is probably because the financial markets have been propped up by gov debt especially in USA where the fed have been purchasing credit so it never hits the banks books.


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    #848
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    At the moment there is no sign of the stress tests being tested. This is probably because the financial markets have been propped up by gov debt especially in USA where the fed have been purchasing credit so it never hits the banks books.

    Again, I understand this, but serviceability of debt, particularly private debt, is slowly creeping in again, this could get rocky, soon, and then we have countries such as Italy!


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    #849
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    Again, I understand this, but serviceability of debt, particularly private debt, is slowly creeping in again, this could get rocky, soon, and then we have countries such as Italy!

    Yes it is creeping in again and that is why they markets are looking for more stimulus. All that is happening this time around is that the USA gov are stepping in earlier and bailing out the credit markets rather than letting it hit the banks and then bailing them out.

    The US Stock market is over inflated at the moment and there will be a crash very soon that will end up changing the landscape. If you look at the underlying shares that have boosted the stock market they are tech and pharma and hedge funds have started to short these in the belief that they are overpriced. Once this crash comes it will change investor sentiment from greed to Fear.


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    #850
    440Hertz
    Closed Accounts Posts: 651 ✭✭✭440Hertz


    One of the issues that I’m a bit concerned about is another US mortgage crisis on the horizon. There’s a whole load of defaulting going on over there at the moment as people aren’t able to pay mortgages due to COVID impact on jobs.


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    #851
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    440Hertz wrote:
    One of the issues that I’m a bit concerned about is another US mortgage crisis on the horizon. There’s a whole load of defaulting going on over there at the moment as people aren’t able to pay mortgages due to COVID impact on jobs.

    I'm fearing this could also affect us and also occur here to, this has potential....


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    #852
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    I'm fearing this could also affect us and also occur here to, this has potential....

    Yes there is an increase in people defaulting on mortgages but the banks have adequate capital to absorb this loss unlike in 2008


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    #853
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    Yes there is an increase in people defaulting on mortgages but the banks have adequate capital to absorb this loss unlike in 2008

    Again, I understand this, I'm just not convinced we ve done enough to garantee this, particularly on a global scale


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    #854
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    Again, I understand this, I'm just not convinced we ve done enough to garantee this, particularly on a global scale

    On a Global scale there is massive fall out... All the emerging markets are in big trouble and we are already seeing countries starting to default on gov debt. But on the main economies of USA & Europe we are not seeing this because of the government intervention. Instead what we are seeing is an economic situation that will be stagnant for the next ten years due to the increase in public debt. The only thing that will break this deadlock is when they pass negative rates onto retail customers and then we will see inflation. I predict that this will come Q1/Q2 next year and that inflation will overshoot targets because once it starts moving the price of Oil will recover and this will increase the cost of everything.


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    #855
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    brisan wrote: »
    Numerous high profile cases in the papers where people paid nothing or very little for up to 10 years off their mortgage
    Pamela Flood and Glenda Gilson parents are 2 cases that spring to mind
    Twink has been days away from losing the house ever since her husband unzipped his mickey
    There are probably thousands more
    None of these are examples of newspapers linking this to interest rates - which is what my post was discussing.


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    #856
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    Private debt has been decreasing the past few years!!
    Ireland's Corporate Debt is gigantic. Muliples of Public Debt.


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    #857
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    KyussB wrote: »
    Ireland's Corporate Debt is gigantic. Muliples of Public Debt.

    It has been falling for the last 10 years see the slide from the NTMA investor relations presentation


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    #858
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    From this (back to 2017) it'd seem Private Debt was 172% of GNI* - household 77% (P10), local corporate 95% (P17):
    https://assets.gov.ie/7079/dc2b93dbcf1d40af9e01c2920c90acd3.pdf

    It'd be smaller than that now - but unlikely by 70%-80%.


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    #859
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    KyussB wrote: »
    From this (back to 2017) it'd seem Private Debt was 172% of GNI* - household 77% (P10), local corporate 95% (P17):
    https://assets.gov.ie/7079/dc2b93dbcf1d40af9e01c2920c90acd3.pdf

    It'd be smaller than that now - but unlikely by 70%-80%.

    "Table A.14 Credit Advanced to Irish Resident Private-Sector Enterprises" published by the CBI shows private debt falling year by year
    Dec 2012 199,251
    Dec 2013 178,708
    Dec 2014 135,173
    Dec 2015 110,199
    Dec 2016 98,847
    Dec 2017 90,268
    Dec 2018 82,952
    Dec 2019 74,243
    Jun 2020 74,974

    The point that I was highlighting was that it is not increasing year and year and in fact has decreased by a significant amount.


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    #860
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    On a Global scale there is massive fall out... All the emerging markets are in big trouble and we are already seeing countries starting to default on gov debt. But on the main economies of USA & Europe we are not seeing this because of the government intervention. Instead what we are seeing is an economic situation that will be stagnant for the next ten years due to the increase in public debt. The only thing that will break this deadlock is when they pass negative rates onto retail customers and then we will see inflation. I predict that this will come Q1/Q2 next year and that inflation will overshoot targets because once it starts moving the price of Oil will recover and this will increase the cost of everything.

    I truly believe we ve very little to be worrying about over public debt, the problems truly still are with private debt, globally. Again, I also truly can't see this miraculous recovery via increased consumption


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    #861
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    I truly believe we ve very little to be worrying about over public debt, the problems truly still are with private debt, globally. Again, I also truly can't see this miraculous recovery via increased consumption

    It depends on what public debt is spent on. If it improves efficiency such as motorways ports Education housing etc then there is a tangible benefit in the future. The one thing we do know is that the more debt Public or private equals slower economic output if not spent correctly


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    #862
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    It depends on what public debt is spent on. If it improves efficiency such as motorways ports Education housing etc then there is a tangible benefit in the future. The one thing we do know is that the more debt Public or private equals slower economic output if not spent correctly

    Absolutely, but I think it's also important to realise, inefficiencies exist in both sectors, some debt will be wasted, and we may never experience 100% efficency, in either sectors. human behaviour is simply irrational and unpredictable at times, which can lead to inefficiencies, a more mature path is to accept that both sectors have inefficiencies, but we should always work on reducing these as much as possible, and accept the relationship between both sectors, is in fact symbiotic, but sadly, this reality is potentially further from acceptance than ever before.


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    #863
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Arjen_Robben wrote: »
    There is a limit to how much debt a country accrue, eventually bond markets will stop lending or demand huge interest rates.

    Yes you are right but you need to consider that the ECB and other central banks are the one's lending via QE which is pushing yields down and allowing investors to make money via appreciation of the Bond. The question is how long can QE continue and what happens when it slows/stops.


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    #864
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Arjen_Robben wrote: »
    There is a limit to how much debt a country accrue, eventually bond markets will stop lending or demand huge interest rates.

    yes and no, central banks can never run out of money, but a country can technically run out of capacity to service its debts, but i wouldnt be overly worry about that, theres virtually no supply issues and there probably is enough demand out there, all thats needed is the money, and debt is the only way to be doing that, plough on with the public debt, be grand


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    #865
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    yes and no, central banks can never run out of money, but a country can technically run out of capacity to service its debts, but i wouldnt be overly worry about that, theres virtually no supply issues and there probably is enough demand out there, all thats needed is the money, and debt is the only way to be doing that, plough on with the public debt, be grand

    There is a limit as the more QE that is undertaken the more the value of the currency drops which in turn leads to imported inflation which is different to inflation due to GDP growth.

    At the moment all countries are stepping up QE at the same time so we are not seeing the currency drop but weaker countries especially in the emerging markets will hit there limit soon which will lead to imported inflation and bond yields increasing making it more expensive for countries to service there debt and risks a potential sovereign crisis.


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    #866
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote: »
    There is a limit as the more QE that is undertaken the more the value of the currency drops which in turn leads to imported inflation which is different to inflation due to GDP growth.

    At the moment all countries are stepping up QE at the same time so we are not seeing the currency drop but weaker countries especially in the emerging markets will hit there limit soon which will lead to imported inflation and bond yields increasing making it more expensive for countries to service there debt and risks a potential sovereign crisis.

    where is this magical inflation, particularly from previous qe?


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    #867
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    where is this magical inflation, particularly from previous qe?

    It is hidden due to the deflation in the wider economy and by the drop in oil prices.

    Also We are also not seeing it as all countries are undertaking QE so currency value not dropping but once one stops or slows down then we see it.

    The emerging markets will be the first countries to stop/slow down and we rely heavily on these countries for commodities.

    Remember I am talking about imported inflation.


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    #868
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Arjen_Robben wrote:
    Eventually you get hyperinflation, you can't just print your problems away indefinitely.

    Highly unlikely, baring in mind previous hyperinflation events were not exclusively due to excess money creation, but included other economic factors, in particular serious supply side issues, we currently do not have such issues, in fact deflation is more or a concern
    Timing belt wrote:
    It is hidden due to the deflation in the wider economy and by the drop in oil prices.

    I'd say it's because most of the money created is flooding straight into asset markets, rising deficits is the only game in town now, and it ll probably be grand, it ll more than likely be safer there than coming from the private sector to


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    #869
    Timing belt
    Registered Users Posts: 3,408 ✭✭✭Timing belt


    Wanderer78 wrote: »
    Highly unlikely, baring in mind previous hyperinflation events were not exclusively due to excess money creation, but included other economic factors, in particular serious supply side issues, we currently do not have such issues, in fact deflation is more or a concern



    I'd say it's because most of the money created is flooding straight into asset markets, rising deficits is the only game in town now, and it ll probably be grand, it ll more than likely be safer there than coming from the private sector to


    If what you are saying the money is ending up in asset markets then by default it is leading to higher private debt. Putting this argument aside there is still a limit to the amount of public debt that can be issued for the reasons I mentioned earlier. My prediction is that countries will struggle to service their debt in years to come due to increased imported inflation and it will lead to a sovereign debt crisis which in turn will lead to tax rises and cuts in expenditure. The only way this will be avoided is if there is a vaccine and a very strong economic recovery. The longer it goes on the greater the risk.


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    #870
    Wanderer78
    Registered Users Posts: 28,809 ✭✭✭✭Wanderer78


    Timing belt wrote:
    If what you are saying the money is ending up in asset markets then by default it is leading to higher private debt. Putting this argument aside there is still a limit to the amount of public debt that can be issued for the reasons I mentioned earlier. My prediction is that countries will struggle to service their debt in years to come due to increased imported inflation and it will lead to a sovereign debt crisis which in turn will lead to tax rises and cuts in expenditure. The only way this will be avoided is if there is a vaccine and a very strong economic recovery. The longer it goes on the greater the risk.

    I appreciate your opioion and knowledge, but as you said, if we don't take some of the debt onto the public balance sheet, it ll just push the need to increase the money supply out into the private sector, and with confidence collapsing in this sector, the demand for this credit will more than likely remain reletively low for some time. So its either expand the deficit or potentially face an overall contraction of the economy. You could very well be right about a sovereign debt crisis in the future, but it's something I'm not concerned about at all, these debts can be rolled over, almost indefinitely, without any major issues, just as long as the debts are regularly serviced, it should be fine. As 08 showed us, having more debt on the public books is far safer than having the bulk in the private sector, although not problem free, as you've explained very well


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    #871
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    Timing belt wrote: »
    There is a limit as the more QE that is undertaken the more the value of the currency drops which in turn leads to imported inflation which is different to inflation due to GDP growth.

    At the moment all countries are stepping up QE at the same time so we are not seeing the currency drop but weaker countries especially in the emerging markets will hit there limit soon which will lead to imported inflation and bond yields increasing making it more expensive for countries to service there debt and risks a potential sovereign crisis.
    QE doesn't have a direct effect on currency valuation. Its effects on foreign demand for a currency are limited to the financial sector, not trade.


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